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ESMA deadlock: European regulator’s interference unfortunate, says RBI DG


The Reserve Bank of India’s (RBI’s) Deputy Governor T Rabi Sankar has termed the derecognition of Indian clearing houses by the and European regulators ‘unfortunate interference’, particularly when such Indian entities meet the global best standards.

Sankar, who is the deputy governor in charge of the financial markets, was speaking at a seminar organised by Financial Benchmarks India in Mumbai on Monday. The speech was uploaded on the website on Wednesday.

“A probably unintended consequence of the post- (GFC) drive towards derisking over-the-counter derivatives markets has been the tendency of the developed economies to contain the risk of their entities by attempting to maintain control of regulation and risk management practices of third countries,” he said in the speech.

“Thus, for example, European banks may not be able to operate through Indian financial infrastructure entities (like central counterparties, benchmark administrators, etc) unless their home regulator accords ‘equivalence’ treatment to the Indian infrastructure entities or these entities are endorsed or recognised,” he said.

Sankar said such treatment involves the ability to call for information, supervise, inspect, and (at least potentially) impose a penalty on Indian entities, which, according to him, is an ‘unfortunate interference’.

“This amounts to an unfortunate interference in the regulatory architecture in India, given the fact that these Indian entities meet relevant global best standards, set by the Committee on Payments and Market Infrastructures-International Organization of Securities Commissions,” he said.

On October 31, the European Securities and Markets Authority (ESMA), the European Union’s financial markets regulator and supervisor, derecognised six Indian clearing houses, including the Clearing Corporation of India, which hosts the trading platform for government bonds and overnight indexed swaps.

ESMA’s decision comes into effect on May 1, 2023. Subsequently, the announced similar measures.

The deputy governor warned that the potential disruptions to the markets due to such extraterritorial regulatory outreach could be serious.

“The potential disruption to the markets, both onshore and non-deliverable forward, can be rather serious. That such disruption flows from the action of regulators is not in alignment with the post-GFC global consensus on derisking financial markets,” he said.

Observing that there are costs involved for the financial sector players due to such action, the Indian central bank said a solution should be found quickly.

“All regulated entities understand the costs and constraints of compliance. It cannot be anyone’s argument that replicating such obligations for every regulator in every jurisdiction is an efficient arrangement. A satisfactory solution to this impending complication needs to be found quickly,” he added.


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